China, Oil and Latin America … - SinoLatin Capital

valdez@sinolatincapital.com www.sinolatincapital.com
+ 86 (21) 6109-9568 x 8015 November, 2010
The Middle East and West
Asia have been the main
recipients of Chinese
investment. Latin America is
gradually becoming an area of
strategic focus.
“Loans for oil” account for the
largest portion of Chinese
capital flows to Latin America
(including a US$ 10 billion
loan to Petrobras in Brazil and
US$ 20 billion to Venezuela).
2) Over 75% of acquisition targets pertain to import-oriented upstream assets.
Aside from refinery capacity and terminal market, crude oil supply is the bottleneck
of the entire industry value chain. To offset the weakness and better utilize idle
capacity, acquiring overseas assets become an effective mechanism to secure long
term supply (either by taking their share of production and/or negotiating off-take
agreements). Chinese investors are interested in acquiring an equity stake - not
necessarily securing control– in producing assets than simply in exploration fields. In
some cases, Chinese NOCs and their subsidiaries, directly or supported by China
Development Bank provide financing and/or participate in infrastructure projects.
3) Although the Middle East and West Asia have been the main recipients of
Chinese investment, Latin America is increasingly becoming an area of strategic focus.
The map of China outbound acquisitions and investment align with resource
allocation worldwide. Taking into consideration location, transportation and
government relations, it comes as no surprise that China has invested in Syria, Iraq,
Iran, Kazakhstan, among other jurisdictions. However, it was not until 2008 that
Chinese Government released a policy paper positioning Latin America among the
top priority investment destinations. 11
Chinese O&G Outbound Investment Allocation: 2005 – May, 2010
2005-2010.5 Transaction Resource Added (Minimum)
Rank
Region Transaction Number Transaction Value Theoretical Reserve Annual Production
Million Barrels Million Barrels
Total 49 84.67 16,525 957
1 West Asia and Middle East 20 34.3 8,030 147
2 Europe 7 18.77 1,300
3 Africa 7 10.95 895
4 South America 6 10.23 2,900 799
5 North America 5 7.83 3,340 11
6 Australia 4 2.59 60
Source: China Global Investment Tracker. The Heritage Foundation. Rigzone
4) ‘Loans for Oil’ resulting from high level government to government
arrangements have increasingly taken place, guaranteed by oil & gas reserves at a
fixed price. In countries such as Venezuela, by means of the China Development Bank,
China has agreed to grant billion dollar loans to develop specific oil blocks and build
infrastructure. In most cases, loans carry certain specific obligations and are secured
by oil reserves in fixed terms. In others, these are advanced payments to specific
volumes of hydrocarbons to be shipped to China 12 . Recent agreements include:
- February 18, 2009 – China and Venezuela agreed to double their joint
investment fund by injecting an additional US$4 billion from China; PDVSA
committed to sell to CNPC between 80,000-200,000 bopd by 2015.
- September 2009 – President Chavez announced Chinese companies will invest
US$16 billion in developing the Orinoco Belt’s heavy oil reserves.
- April, 2010 – A new loan between China and Venezuela for US$20 billion was
announced. CNPC will be PDVSA’s partner in exploiting the Junin 4 oil field.
11 Forming an investment consortium as well as partnering with other interested parties is one of the
mechanisms used when acquiring high-value assets (above US$ 1 billion at a sound purchase price).
12 Similar arrangements in other oil producing countries in Africa & The Middle East
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